Quarter 1
Q3 2026 Earnings Call — February 5, 2026
open it up for questions.
Your first question comes from the line of Rick from Raymond James. Your line is live. Sorry. Hey, can you hear me okay? Yes. Okay. Sorry. Several earnings tonight, so I'm trying to not overlap on the sound. Sorry about that. Yeah. Hey, a couple questions. First, on the all-important Flight 2, Flight 3 launches and services, it looks like maybe a little bit of a delay on Flight 2, saying now May versus early 26th. and then Flight 3 will go up, hopefully launch shortly after Flight 2 in service. How fast can Flight 3 get into service? Are there differences given the rocket you're using as far as how fast that can get in service? Yes. Yeah. The Flight 3 will probably have more like a two-month orbit raise as opposed to more like 100 days for Flight 2. So that will get it. That's kind of the dominant factors that were raised in terms of time from launch to in-service. Great. And as we think about the strategic review you all are going through, obviously, this is not something you take lightly or that you would do without careful review. It's a long process, not necessarily a quick process, obviously.
But it seems like, as I read through the comments in the letter and I listen to you on the call, You want to see flight two and flight three successfully go in service. You want to see macro market conditions of the segments. You want to see achieving de-levering and free cash flow generation. Boy, it sure looks like the tick points are starting to come along where that decision process and any external gating factors that might affect it are kind of getting knocked down. Is that the right way to think about this, that kind of opens up the aperture of when you might do something? Yeah, I think you've got the factors right. Those are the things that we're looking for, and they'll all go into the mix of what we decide to do and when and how, if anything. I just want to be sure that we're evaluating and we're going to look at. All right. And you got the factors just right. Okay. Okay. Makes sense, and the progress goes along there.
And then kind of the wacky question then is, and there's been a lot of stuff going on in space, what are your thoughts about data centers in space and AI with space? Just trying to think, as you think about you want to target fast-growing segments and profitable segments of space, where do those fit in your calculus? Okay. Yeah. So on the data center side, I think that the – the entire premise really hinges on power generation in space. That's the ultimate, that's what the ultimate test will be, is does it, will it ever make sense that you can generate power more cost-effectively in space than you can get it anywhere on Earth? So, I think that, and that's an open question, I think that Along the way there, and this is what I think other people have identified as well, kind of the two of the big swingers there are going to be how efficiently can you generate power in space from solar cells, and then how efficiently can you dissipate the heat from all that power off board the satellites. So from our perspective, Work in those areas is really helpful because it improves the productivity of communication satellites as well.
I think there's another aspect that does get some coverage, but probably not as much as it should, which is what is the orbital, you know, debris mitigation plan or sustainability factors associated with the amount of mass that's required for those data centers in the surface area. for those data centers, and does that provide a gate or does that create a gate or a limit to the amount of power you can generate, at least in near-Earth orbits? From our perspective, we don't have any plans to be in the data center business. You know, everybody does note that if you want to be in the data center business in space, you're going to need a lot of communication capability to and from that. And so that part we're certainly interested in, and we're certainly interested in partnering with others that might want to actually put the compute storage resources in space. Great. It is.
And so when you think about fast-growing segments that you'd be interested in that would fit kind of your capital intensity and your free cash flow generation that Gary was talking about, what should we think are kind of the top – one, two, three, four, five segments that you think make great addressable markets for what you guys bring as far as competitive advantages? The two areas, if you look at it from a technology perspective, think of it as the broadband sector, which is kind of K-band and higher frequencies that are being used for broadband communications. We see that there has been, for the Last 10 years, you know, lots of demand growth as unit prices come down, get more speed, more volume, per unit cost, and those markets have grown. We still think there's quite a bit of growth in there and that we can certainly compete really well in that space. And then there's, you know, the whole tradeoff between fixed and mobile uses. The mobile uses, certainly, you see lots of growth in those parts, and especially given what's expected to be a substantial increase in autonomous mobile platforms. The other area, from a technical perspective, is going to be the L-band or the low band.
People refer to them as mid-bands. And that market, right now, if you look at a range of analyst estimates, that could be one of the single largest markets. in the satellite communications space. Within those two categories, within the broadband market and the L-band market, we really see a number of vertical markets. In the broadband market, certainly mobile platforms is one of the biggest and most interesting. And within that market, government applications is really a big opportunity. and one of the big trends we highlighted there we think is going to be sovereign ownership that is international and domestic applications so that's going to be operating those networks designing the network building the networks but a lot of them we think ultimately will end up under control of individual countries as opposed to outsourced to private enterprises when those countries are going to be so dependent on that type of communications for national security.
Also, the other thing we see coming in the mobility market is that just as a consequence of some of the geopolitical conflict around the world, there's large parts of the earth that are just closed off to access to navigation and communication services, and we think those services that ship owners, airplane operators, they're going to want to be able to navigate and communicate through those, not necessarily over individual hotspots, but in the surrounding areas that often are contended. We see big opportunities that are kind of a mix of commercial and government in that broadband mobility area. And the big difference between the L-band mobility area and the broadband area is think about L-band will have higher unit airtime costs, probably lower speeds just because there's way less spectrum to work with. But the antennas that you can use for that are going to be really small, very small, omnidirectional. That's like conventional cell phones, IoT devices, watches. And, you know, in the history of satellite communications, One of the main barriers to growth has just been having people with terminals capable of working with your satellites.
And so the big thing that's happening in this deep D2D NPN, non-terrestrial network space, is, boy, there are going to be literally billions of devices that are connected. And as long as you can do the handovers quickly and well, we think that as long as there's interoperability between the terrestrial and satellite domains, well, that's going to be a big market. And that's going to be for consumer use, enterprise use. It's going to be on autonomous vehicles. There's going to be some question about how quickly each of those markets develop. But ultimately, just like in terrestrial, having spectrum that works with those devices is going to be a prerequisite to being able to participate where we feel that we've put ourselves in a good position as one of the very few operators that really has access to both the broadband microwave frequencies and the mid-band, L-band frequencies, and can deliver that continuum of service. So that's, you know, in a nutshell, that's what we're really aimed at with our satellite services. As a Norway in a nutshell, that was satellite in a nutshell. I appreciate that. And good to have Spectrum and good to have satellites about to come in service.
All right. Thanks, guys.
Your next question comes from the line of Sebastiano Petty from J.P. Morgan. Your line is live. Hi. Thank you for taking the question. I guess, Mark, related to your response to Rick's last question, just thinking about in the past you've talked about a tower model as it pertains to directed device. I mean, can you perhaps maybe elaborate on that? I guess, what gives you confidence that we'll see, you know, two plus three D2D players that can perhaps emerge over time, particularly without the, you know, requisite, you know, spectrum that's out there, right? I guess that's kind of my first question. I think maybe the sovereign angle probably answers part of that. And then relatedly, I guess, to the end of the prepared remarks there, just kind of thinking about equities and the L-band spectrum or just your overall spectrum ownership. I guess, you know, I understand growing the value of the franchises, but we're also at a point in time now where perhaps spectrum might be a little bit, you know, satellite spectrum is in vogue and very hot right now.
And so just the considerations there of, you know, is it about controlling your own destiny and maintaining option value long term? Thank you. Okay. So for the first question, one is there is a fair amount of satellite spectrum that has been allocated to mobile satellite services and has been for like 40 years. And those satellites serve real and valuable functions for for people that don't have access otherwise and, you know, or depend on the weather resilience of those frequencies compared to the microwave stuff. So, you know, KU-BAM is great for, you know, 100 megabit or plus higher speeds. That's a really nice feature.
But the fact that it is highly attenuated in storms is a big issue for maritime as an example and for some other users as well. there are you know the spectrum has been allocated there are multiple players that have it often countries who use it for national security purposes or who worry about you know having you know literally millions of people in their countries with devices that can completely bypass their terrestrial infrastructure are going to and have been asserting their requirement that operators in those countries comply with national telecommunications regulatory laws. So we think that there are good reasons for that. They're not technical reasons. They're more national security sovereignty reasons and other safety reasons. So We think that those are just going to be requirements to play in the market at a large scale in many parts of the world. So we, one of the reasons we're interested in Inmarsat in the first place was, you know, it was formed as an international organization to solve some of these issues around mobile satellite services and the need for that.
And we still have really good relationships with a lot of countries around the world where we can work through these problems as we evolve the capabilities. And so that is one part of the issue about why we think there will be multiple players. The first part of
your question is related to some extent, which is the issue about high power. So... I think it's not always well understood that the thing that creates the potential of communicating with an office-shelf terrestrial cell phone is increasing the power levels that are allowed for mobile satellite service. And we're talking about power levels on the surface of the Earth. It doesn't really matter what altitude you're generating them from. You know, the big issue, one of the issues that always has been an issue, an issue in basically all wireless spectrum uses is how high of a power can one operator reach or radiate at without interfering with neighboring frequencies. And so that has been one of the main issues.
That's probably been worked more in the U.S. than others, and a lot of focus has been on to satellite emissions that can interfere with terrestrial cellular of course anybody that wants to do it uh from satellite at these power levels is also going to have to coordinate with other satellite operators right that so that's one of the things that we've been really focused on and uh just to be clear The 3GPP standards, which is what the chip designers and handset designers are working towards the infrastructure, everybody's working, do call out these higher power levels that would be required, with higher power levels required for the broadband services versus the narrowband services that are already in service and that we're participating in service for right now. So, I mean, these are... kind of the same fundamental issues that all satellite operators had to deal with for decades. They're not going away. I think there are solutions to them. We know what our constraints are in terms of interfering with neighboring operators, and we are designing our network in a way that it both achieves what's required in the 3GPP standards and does not interfere with neighboring users.
And that is an artifact of our system design and who our neighbors are. So that's how we're doing it. We think we have a good spectrum for that purpose, and we think we understand the issues well and are addressing them. Thank you, Mark, for being here.
The next question comes from the line of Ryan Kuntz from Need Animal Company. Your line is live. I wanted to ask about the IFC, and you announced this new next-gen terminal with Telesat. Maybe you could expand on what's attractive about their Lightspeed constellation for you, Mark, and how that, you know, differentiates from other opportunities out there. Okay. Yeah, thanks. What we're looking to do with Telesat is basically recreate what's been working in the maritime space in a multi-orbit system. In the maritime space, there's a lot more room on board ships, and it's easy to put on multiple antennas. And so for the Nexus Wave service, which has grown, has had really good market reception, and we're getting good good adoption and financial results on and uh it's been in use for about a year uh so we've got good good field results i mean the that's we're using a ka band broadband service which uses our geo satellites plus ku band leo and we do that with two different antennas with uh with our new aero services we'll have a a new single antenna that can operate both at LEO and GEO simultaneously effectively. So we'll do there just what we're doing in the maritime space.
Essentially, we're using the GEO satellites to provide the bulk of the bandwidth and LEO satellites to manage traffic that is latency sensitive. So what you get This is you get the cost benefits of geo, which not all geo satellites are the same. We've been really focused on putting bandwidth where there's demand at very low cost per bit and being able to move it around to follow these mobile platforms. All that stuff works well. The big thing we're going to do in Aero is instead of having two antennas, we'll have one antenna. That can do both LEO and GEO. At the same time, we primarily route the latency-sensitive traffic, excuse me, over LEO. And, you know, the vast majority of the traffic tends to be video, which is not latency-sensitive at all, very well suited for GEO. So that's the basic principle behind that. I think that... The last tell us that it said is that they expect to start to be launching their LEO satellites by the end of next year. And so that's when we'll be able to offer that service. The other point I would make is even our existing CABE and aero terminals are capable of operating with the LEO. They're just not capable of doing both at the same time. I see.
Awful. And then maybe kind of big-picture question about once you get F2 and F3 in service here, it sounds like a third-quarter time frame. What's the time frame from which you really start to see a revenue inflection, time for that comm services business to turn around? Are we talking about a couple quarters, or how should we think about that on a modeling basis? I think – so we've had steady growth in – Pretty much everything except for residential has been a headwind for us. Maritime, we've seen slight downturn, but we're expecting that based primarily on the Nexus Wave service to be back to growth again by this quarter. So we think we'll see. you know, good continued growth in those services plus growth in the government services. On the residential side, you know, we're not going to give the projection right now, but it'll probably take a few quarters for us to get terminals out in the field and to see that, you know, at first what we're going to be aiming for is that we slow the rate of decline, and then we think we'll level up and be able to grow that business a little bit. Mark had said in the past he's referred to it as, you know, being paced by the demand.
And we have a lot of opportunities, you know, on the unit side as well as, you know, continuing to upgrade some of the service offerings like you're seeing in aviation. Right.
Thank you.
Your next question comes from the line of Mike Crawford from B Reilly. Your line is live. Thank you. Back to the evaluation you're doing on your government assets, could you just walk through some potential scenarios of how you would manage these, quote, key dependencies of satellite assets if you were to separate, say, the debt business from the rest of ISAT? No. No. i think i mean you're on the right you're on the right track uh you know in terms of the issues that we need to resolve right and so that is that is part of what we're going through both from a capital structure perspective from a technology perspective part you know perspective potential licensing or other class agreements that that's what we're going through and uh those would be the factors that we're not going to speculate. I think at this point there's just too many ways to go about it. We're not, I think we're trying to make sure we do a really thorough evaluation and it may evolve over time. We'll be able to speak more about it after we've gotten through these gates. But the whole thing is we are very focused on shareholder value. We're not going to dismiss things that will drive shareholder value.
But we also, you know, we're going to make sure that whatever we end up with has a, that we think has a good competitive position in the growth markets and then can get the shareholders can get the benefit of those things. Okay. Thank you, Mark. And just one final question from me. Just, you know, given this, This global refresh driven by quantum-resistant cryptography and your historical leadership position, information security, protecting data on the movement at rest, are you seeing your position today as competitively the same or stronger or may perhaps threaten by emerging competitors? Yes. You know, we're seeing good growth in that business. We think we're – the way I put it is I think that our competitive position has probably improved a little because of the urgency of the problem, and the market size has improved a lot because of the urgency of the problem. So we're pretty bullish about that area. Okay, great. Thank you very much.
Your next question comes from the line of Eberson Yu from Deutsche Bank. Your line is live. Hey, thanks for taking our questions. I wanted to actually come back to your comments about the space data centers. Let's assume that on the energy side, efficiency side and everything, that kind of gets sorted out. Do you think spectrum is or becomes a limitation? And I ask that in the context of There was an announcement by Blue Origin around TeraWave, and they seem to be using or wanting to use very high frequencies, Q-band, V-band, and doing like an optical from Neo to ground. So just wondering if spectrum then becomes some type of constraint. Yes. So I think you're already seeing a migration to higher RF bands. So, you know, from KU to KA. Now V-band is, you know, coming more into play. E-band will probably come into play as well. So that opens up more spectrum. Ultimately, I think the number of people have talked about optical links from space to ground.
And, you know, one of the benefits of optical links is it's very easy to support large numbers of different operators, each with large numbers of satellites without interfering with each other, that it's going to, you know, at some point, if there is to be a big market for data centers and space obstacles, you know, space to ground links has got to be a significant part of it. Okay. And separate topic, I know you're working – in the pipeline on a sort of micro or mini geosatellite. Wondering any updates on that, and is that something you think could become kind of more prevalent in the future? Yes. Yeah, I think, you know, basically one of the points I would make is, you know, I think we've been holding our own and competing pretty well without having any new broadband satellites, you know, while competitors have launched thousands and thousands of satellites, we've really been working up, been able to deliver competitive performance and pricing without having a lot of new bandwidth in space. We're going to get a lot of new bandwidth in space this year. I think that's going to help our business a lot.
So we know that given the market growth and the consumption growth that we're we're going to want follow-ons, and we're going to want follow-ons in specific areas. So the strategy that we're working on, and I think we'll be able to disclose more of this over the course of this year, once we get through getting the other satellites in service, is to come up with satellites that cost a small fraction of what the current ones do, but have even better unit productivity. So that's what's going to allow us, we think, to maintain and improve our competitive position in the satellite broadband space. And so we have, you know, we're not going to end up with large, you know, multi-hundred million dollar single investments that are, you know, where we have big exposure for large capital bites. What we'd like to do is have much, much smaller satellites that are much less expensive, that have pretty comparable capacity, and we can put wherever the hot spots are. And I think that's going to drive.
One of the things we keep talking about is how do we drive down capital intensity? That's a big component of it, and that will drive a return on capital, which is clearly the way that we're going to deliver more shareholder value. Great. Thank you. Thanks, Anderson.
Your next question comes from the line of Justin Lang from Morgan Stanley. Your line is live. Hi, great. Thanks for speaking to me in here. Mark, maybe just quickly back on the strategic review, I'll try one here. You know, a large defense prime just a few weeks ago announced a planned IPO of one of its businesses with the U.S. government as an equity investor. Curious if you see any particular merits or attractive elements in this sort of structure as you think through the the optionality around that business. Wow, that's an interesting one. Okay. You know, I think, yeah, look, I think that part of that's going to be around the priorities of individual governments. And I think that right now the U.S. government seems to be taking an interest in and providing some benefits to what otherwise had been purely private enterprises. So if those, you know, to the extent that those are available in a competitive position and shareholder value, that's an interesting thing to do. There are maybe more instances of that internationally, and so being able to do so internationally would also be a benefit.
I'd say that those are examples of things that we might look at when we consider some of these more fundamental strategic capital structures. Great. That's great, Kelly. And maybe just quickly, Kerry, and I might have missed it, just for a little more color on the revised CapEx outlook and specifically whether the new guidance reflects more of a push-out of some of the planned investment into 27 or just trying to understand if it's timing-related. Thanks. Yeah, generally not. We did note there was $40 million that we expect to continue into fiscal 27 from the Viasat 3 spend that we've been talking about. Beyond that, the rest of it really is efficiency-driven. And, you know, we've had a big focus here on making sure that we're efficient with our capital. It has not at all been about cutting or reducing capital. And everybody has embraced it. I think we've done a nice job of it. So other than that $40 million I described a minute ago, you know, it's real efficiency gain. Got it. Thank you both. That concludes the question and answer session. I'd like to turn the call back to Mark for closing remarks. Okay.
We appreciate everybody joining us for this past hour and all the questions and look forward to speaking again next quarter. That concludes today's meeting. You may now disconnect.
Quarter 2
Q2 2026 Earnings Call — November 7, 2025
Management: We will now begin the question and answer session.
Our first question comes from the line of Brent Panter with Raymond James. Brent, please go ahead.
Analyst Brent Panter (Raymond James): Hey, good afternoon, everyone. Thanks for taking the question. Appreciate the comments on the split and some interesting comments there regarding government commercial dual use and vertical integration opportunities, as well as the debt silos. So can you just update us, what inning are we in in terms of evaluating that possibility, and maybe you could just elaborate on those comments regarding vertical integration and the debt side of things.
Management: I'm not sure if I'm going to give an inning, but we are working on them. We're always evaluating these options, I'd say, continuously. It's not like there's going to be an end date to that. And then just in terms of when we talk about vertical integration and dual use, you can see examples of that both domestically and internationally in space systems, increasing reliance on space systems. But the issue is those systems are expensive, and it's hard for a lot of countries to just carve that much money completely out of their economy. So One clear example of this might be, for instance, what Europe's doing with Iris Squared, where clearly a national security system needs to also be able to carry its weight commercially and economically. So we see that as a really good opportunity for us. We're benefiting from that, and we're just weighing the benefits of that compared to any potential benefits of a spinoff. And they're not mutually exclusive. There may be ways in which we connect the two to preserve the competitive advantages while also creating what potentially might be more attractive investment vehicles. That's the tradeoff that we're doing with respect to the spin.
Analyst Brent Panter (Raymond James): Okay, that's helpful. And then spectrum value, you all talked about it. and it's clearly getting a lot of attention right now given some of the activity in the industry. Just focusing on your international spectrum, can you all remind us what exactly you own in terms of megahertz and priority rights? And given some of the existing businesses on that spectrum as well as now the JV with Space 42, How open are you all to alternative ways to monetize that spectrum and maximize the NPV there?
Management: Yeah, in terms of what we have in spectrum, in our ITU positions are public and pretty well, you know, pretty well defined. You know, the big attraction we think in our spectrum position is that it's global. And the amount of spectrum that we have is substantially higher on a global basis than pretty much any other company. I think that the spectrum is put to very good use now. I think in critical services, both maritime and aviation, as well as land mobile, I think that those services are going to improve. They're important to almost every nation on Earth, and so we do have really well-coordinated access to virtually everywhere in the world, which is also a unique situation. What we're looking at is a combination of evolving those services to fulfill the demands of the aviation industry and the maritime industry, while also being able to support the network standards that enable the, you know, this large potential direct-to-device market.
What we do think is a lot of the applications that are going to drive these uses, which include things like, you know, vehicular autonomy, aeronautical autonomy, maritime autonomy, more edge-based AI applications, that all those things are going to leverage both terrestrial, mobility where available as well as space. So what we're doing is we're just constantly evaluating the two main forms of how the company can derive value from it. One is by continuing to operate and invest in the infrastructure required to use those assets versus what the current value might be to others who might be able to use those assets as well, where we may be able to either work with them or coordinate with them in a way that also builds value. Those are the tradeoffs that we do. I think we've been, you know, responsible stewards of it. We just completed one transaction that we thought was in the best interest, and that actually had been in the works for quite a long time.
So I think we're going to be open-minded and even-handed, but always mindful of the public interest obligations that come along with that spectrum and making sure that we fulfill those obligations and we're continuing to use the spectrum in the best way for both us and our public interest obligations.
Analyst Brent Panter (Raymond James): Okay. Appreciate all the detail there. And then final question for me on the topic of Equitus. Can you all just talk a little bit more about that project and who you view as the ideal customer that this is going to be most appealing to? And realize it's early, but any conversations you've had with other potential partners or customers? And then would also appreciate any details you can give in terms of economics, CapEx, and how we should think about that.
Management: You know, the main purposes of Equitus are really to help bring modern infrastructure to the spectrum, you know, to spectrum allocations that are either satellite-specific or could also be used for the supplemental satellite spectrum allocations as well. Kind of the thing that's really influencing these direct-to-device, that is being able to make connections to cell phones, are the power levels and the gains in the space segment that enable closing those links. And so they're generally done by global constellations, but there are a number of operators that are otherwise only regional. And so the notion of having shared infrastructure is a very natural way to be able to extend, you know, to make that infrastructure available to regional players who otherwise would only be able to make use of that infrastructure a small fraction of its time. So there are multiple benefits that Equitus can deliver. One is that operators would only essentially pay for the services that they can use in their region, and they wouldn't be paying for dead time over other places. That by having a cooperative there, those infrastructure costs are shared.
There's additional benefits that can be gained for operators who choose to coordinate their spectrum with others in a way that aggregates that spectrum and just takes advantage of new information, theoretic, Shannon capacity terms that would mean that adding, treating the spectrum as an aggregated block is the most cost-effective way to increase capacity and reduce airtime costs. So we are in discussions with a number of regional operators in addition to Space 42, which is they have a very large region, two-thirds of the world, but there are other regional operators who are really interested in having sovereignty in their area at an economical cost. One of the partners that we're working with already that we've discussed in the past is Europe. We're working with the European Space Agency to help them have a sovereign component to a global constellation that would be far more economical than what they might otherwise do on a standalone basis. I think that's a good example. There are others, but we're not going to name those now.
Analyst Brent Panter (Raymond James): Okay. And anything you can help us out with in terms of sizing CapEx there?
Management: No, I think we'll do that as we get more definition on the program. There are still a lot of variables in the way it's structured and how we work with partners. So at this point, it'd be premature to give detail on that. Just to punctuate on Mark's point, you know, we keep talking about capital efficiency. You know, remember, at least as I looked at the world, you know, the concept of shared infrastructure is a big idea on that front.
Analyst Brent Panter (Raymond James): Great. Thanks, guys. Appreciate it.
Management: And
your next question comes from the line of Sebastiano Petty with JP Morgan. Sebastiano, please go ahead.
Analyst Sebastiano Petty (JP Morgan): Hi, thanks for taking the question. Just to maybe follow up on one of the questions there, Mark, as we think about your global portfolio, I think in the Space 42 announcement it said that you'd be capable of supporting well over 100 megahertz of harmonized MSS spectrum. Is that true? accurate as it pertains to Viasat global harmonized spectrum?
Management: I think the 100 megahertz refers to the combination of what Viasat and Space 42 have together.
Analyst Sebastiano Petty (JP Morgan): Got it. Got it. Helpful. And staying on the Equitas Space 42, as you go down that path, you know, I think, and you kind of prepare yourself for, you know, service launch, right, targeted within you know, three years. I mean, when should we, you kind of alluded to it in an earlier question here, when should we begin to hear more about partners within partnerships with MVNOs, perhaps additional investors kind of coming on board, you know, maybe some of the milestones that we should be anticipating, you know, prospectively over the next couple of quarters and years here.
Management: Well, I think the thing you said at the end is right. It's going to be over the next couple of quarters and years. We still have work to do with Space 42, but we're making good progress on that to provide the definition and the, you know, the transactions that either additional customers or investors would make with Equitus that are necessary to form that. But, you know, we're seeing a lot of interest, and I think, I think now you're starting to see others start to talk about the benefits of shared infrastructure as well. I think that it's pretty evident that that makes a lot of sense. The devil's really in the details, and that's what we've been working on for quite a while, so that we can provide really all of the details needed for real transactions, both by other users of the system, let's say other operators who would participate in the system, investors who would invest in the system, and then MNOs or others who would be users of the system to make it clear what this means in detail to each of those constituents. And I think we're making good progress there, but that'll be the next step, is to get all the definitization of each of those points.
Analyst Sebastiano Petty (JP Morgan): That's helpful. Thank you, Mark. And then I guess one last one, I guess, Gary. notwithstanding the government shutdown and what that might all mean from an awards perspective and, you know, revenue and EBITDA impact. But just as we think about the business overall, right, I think one of the things that, in particular, I think some folks struggle with is just, you know, the backlog growth, right, and the awards quarter on quarter are pretty impressive and, you know, continue to be, continue to grow at a very healthy rate. I mean, I think you called that. I may have missed the data awards, but, you know, CS awards up 35% quarter on quarter. Any kind of help thinking about how that, you know, backlog, you know, as that grows over time, maybe the cadence of backlog recognition. I know we kind of talk book to bill, but is there any other kind of metrics above and beyond the book to bill ratios that we have, you know, historically focused on in the business as we kind of think about your ability to monetize that?
Management: I think you know we highlight the metrics that we think are relevant for how we're seeding the future. I think what you're going to see is and, you know, I should also go back and reference some of the things that we set out to accomplish this year if you remember we said this wasn't really about the numbers It was about, you know, some of the outcomes that we set out to achieve. That was continued growth in aviation, government SATCOM. We wanted to see a stabilization and a return to growth of our maritime business. And then the other one was to make sure that we had access to the capacity of Flight 2 so we could address some of the declines that we've been seeing pretty consistently in our fixed broadband business. And, you know, as I look at the year, when I say we're making good progress, it's largely on those fronts. We're not tracking the specific numbers. So, you know, I'm feeling good about our ability to turn the efforts that we've made this year into growth for the future. And we certainly have the backlog to underpin it. The capacity that we need in some arenas is coming very shortly with Flight 2.
Analyst Sebastiano Petty (JP Morgan): Thank you both.
Management: And
your next question comes from the line of Mike Crawford with B Reilly Securities. Mike, please go ahead.
Analyst Mike Crawford (B Reilly Securities): Thank you. First, on that, that seems to be the commercial embodiment of something you talked about or advocated for quite some time. But is that something that's going to take a year or two to get off the ground? Because, say, an EO... sensor in low earth orbit would have to have an antenna pointing up to uh geo and then it would that signal get bounced back down to uh you know a gateway into the edge of your ground segment.
Management: I'm sorry, Mike, could I miss the very first part which system are you referring to?
Analyst Mike Crawford (B Reilly Securities): Halo net.
Management: Oh yeah, yeah. Okay, yeah, so the Halo net, you know, we're aiming at several different markets one of them One of the early ones that we're getting into is launch telemetry, as an example, where we can really, what we're looking to do is deal with space relay as a whole. So that includes things like launch telemetry. It also, one of the options that we talked about originally was, think of it as sensor data or other data that would be relayed from LEO to GEO and back to ground stations really to help reduce latency for Earth sensing, Earth observation. And we've also been dealing with that a little bit through shared sensor infrastructure. Another one that we got within Marsat is relaying less relaying the sensor data itself and more relaying the tasking and command and control for those satellites, which is also important in terms of getting timely data. There are other components that we're also looking to get to, which are other forms of kind of space vehicles that are relayed through government assets now. that where those government assets are either bottlenecked or actually going away. So it's kind of each of those markets, and they have somewhat different communications paths depending on what the application is. Did that address what your question was?
Analyst Mike Crawford (B Reilly Securities): Yeah. I mean, you've also talked about you know, offering to say earth observation companies and the ability to, you know, not have to wait to pass over a gate.
Management: Yeah. And instead you could get data out to the edge much more quickly. So I have another question, Mark. You have these great cryptographic and encryption franchises. How, how does the advent of quantum computing affect those?
Management: So the very first application is in what people are calling quantum-resistant cryptography. One of the main applications of quantum computing is factoring numbers which would be used to attack existing cryptographic systems. So one of the highest priority objectives in cryptography in any secure infrastructure is making them quantum resistant so that that's driving a big refresh in secure systems, you know, especially in the US but globally as well. The other thing is going to be the other thing that's really driving the growth in our crypto business is basically the use of data centers, right? Things that are so computationally intensive that they can't be done anywhere else. So that's driving, you know, I mean, think of AI as being one of those. There's other big data applications. And, you know, when you think of quantum computing, that's another form of dealing with very computationally intensive applications. Algorithms that will be done in data centers. All this stuff is driving demand for data center cryptos.
And also, on the user side, it's driving demand for cryptos that have kind of the networking flexibility to get to the right data centers that have either the computational resources and or the raw data to work with, as well as the speeds that are needed, as well as the, you know, basically the quantum resistance, as well as other cybersecurity threats that are also evolving along with the quantum threat. So it's just, it's driving, I mean, think of, there's a bunch of drivers that are causing both modernization of the cryptos, increased speed, and then the other thing that becomes really important, data centers, of course, is getting low power, low footprint within the data centers just because of the really rapid increase in aggregate speeds that are going into those data centers. I'd say those are the main drivers.
Analyst Mike Crawford (B Reilly Securities): Thank you. And then just one last quick one from me is, how are you accounting for the $420 million cash received on Halloween and the $100 million of additional cash you're going to get on March 31st?
Management: Um do you want to take?
Management: Hey, I can take this for you this Sean. I think Gary kind of summarized up the, you know, how we see the cash coming in. I think if you look at the earnings we don't expect it to be a large impact to EBITDA so most of the lump sum proceeds are going to go to deferred revenue and they're going to get recognized over the life of the contract. The interest portion will come in, and that will come into interest income, which obviously is EBITDA neutral. We're still finalizing the details. You should see a chunk of that as well in operating cash flow when you see the next set of financial statements. And we'll give you guys more details on that in Q3.
Analyst Mike Crawford (B Reilly Securities): Okay. So you're going to recognize $520 million of deferred revenue over 80 years?
Management: There's a good portion will go to deferred revenue, but we'll also have a portion that will go to interest income.
Analyst Mike Crawford (B Reilly Securities): Okay, thank you.
Management: Thanks, Mike. And
your next question comes from the line of Ryan Kuntz with Needham and Company. Ryan, please go ahead.
Analyst Ryan Kuntz (Needham and Company): Great, thanks for the question. I wanted to ask about the communication services backlog there and obviously Flight 2 going up and the capacity. How should we think about pent-up demand and timing? I know it's about six months from launch to service, but you know, what percentage of that backlog in comp services would you say is dependent on F2?
Management: Actually, you're not going to see that necessarily come out of backlog. I mean, for instance, growth in consumer, right? That wouldn't be a, that's not a backlog item for us. You know, we have pretty good ways of estimating what that growth will be as a function of service plans and pricing. Likewise, for instance, one of the things that we're seeing in aviation is more bandwidth consumption for greater, through greater penetration, or additional service plans again that would just show up as air time. It will be a recurring revenue but it's not going to come out of backlog either same thing in maritime as we're seeing increased use there so it's really going to be reflected in ARPA or plane counts you what you will see is things like ships and airplanes being converted. But that's not going to directly relate to all of the revenue growth that's driven from it. There's a lot of usage. It's continued growth of the franchises that we keep talking about. Aircraft, vessels, residential subscribers, etc.
Analyst Ryan Kuntz (Needham and Company): Sure. So you've got the relationships in place. It'll show up as more usage. But you haven't per se booked, committed... revenue to in backlog for that capacity to come on you just believe that...
Management: Yeah, but what we do have as an example would be think of when airlines work with us they've got ideas of what those service plans will be we can infer from that what the penetration rates would be what airtime consumption would be what airtime pricing models would make sense and then also when we do monetizations, there is, you know, as an example, that will – those types of subscriber statistics might drive advertising or promotional revenue, but it's all kind of – it's sort of baked into what the service relationships are with those customers.
Analyst Ryan Kuntz (Needham and Company): Makes sense. Thank you. And another one, if I could sneak it in, just in terms of – The aviation environment there, I mean, any updated thoughts on how you see that evolving? Obviously, it seems like changes happen every quarter, so I'd love your thoughts on that, Mark.
Management: Yeah, I think, you know, so the main trends you can see is greater penetration of the airlines, including different types of airlines, a greater emphasis on being able to go free to support streaming, driving higher penetration. But, you know, some of the consequences, I can tell you some of the consequences that we've been anticipating and I think are going to play out is as you get all those effects, this issue about what happens in high-demand locations is going to be more and more evident. That is the effects that we've been seeing for quite a while in major hub airports, combinations of airports and seaports. You'll see that. The other thing I think is going to be really interesting, one of the reasons that we've been working on the business models that we are is that the free Wi-Fi in an aero environment is sort of a mixed blessing. On the one hand, passengers like it, but if every airline has the same free service, then they all have extra costs and nobody has a competitive advantage. So one of the things that we've been really working with the airlines on is how do you get competitive advantage and differentiation as well as just free Wi-Fi? And I think those are going to become important. And that's the various monetization techniques that we're using and developing I think will be increasingly important in an environment where every airline kind of is recognizing the need to connect virtually all the passengers with really high-quality Wi-Fi.
Analyst Ryan Kuntz (Needham and Company): Great stuff. Really appreciate that, guys. Thank you.
Management: Thanks. And
your next question comes from the line of Colin Canfield with CatTor. Colin, please go ahead.
Analyst Colin Canfield (CatTor): Hey, thank you for getting the question. As we think about the building blocks on buy-side shares, we just want to run the following concept by you. In terms of kind of like headlines that are out there, right, we have $50 of share value in the DAT unlock. And then we have the organic SACCOM business, which just according to kind of the most recent close, investors are getting for free. So as we think about the precedent transaction of SpaceX Echo Star and the roughly $20 billion of value for, we'll call it 75 megahertz of that span, how do we think about Viasat's 75 megahertz of S-band in that concept, right? And then within that, is it fair to characterize that deal as comparable? A, B, does the company have a preference of cash versus equity? And C, kind of how does the management team think about the arbitrage opportunity of carrying something like that on the balance sheet? So complex question, but basically, how do you think about spectrum and what's your preference on terms?
Management: You know, I think if you look at what's happened in the terrestrial market, you have these same issues about how do you value spectrum. And I think, you know, the main ways are, you know, do we have the – can we bring it to market in the most modern and useful ways, complying with our public interest obligations, and then develop value from that. That's one. Another one would be, can somebody else do that better? And is there a way in which we can reach coordination agreements or some other way to do that because somebody else can do it better than we can? And then the other way you look at spectrum is, what are your options? You know, for instance, in the terrestrial world, one of the ways people can look at alternatives to spectrum in terms of service economics or performance is through node splitting. In space, there's equivalence to node splitting, right, as well, based on sort of how you do beamforming and how big your satellites are. Those are the factors that go into it.
I think that we're really focused on the fundamentals of how does it deliver value to the end users and how do you do that in a way that is consistent with the interests of the regulators that allocate the spectrum. We have to deal with all those issues. We just, it's just hard to break it down into purely transactional methods, you know, just say, well, hey, can we, how would we, how would we structure a transaction that might be just similar to some other transactions when the environments around them are maybe so different that you just can't do it that way? So I think we're not going to speculate on different transactions so much as focus on how do we The one thing that we can really focus on is how can we use the spectrum that we've been allocated in ways that comport with the license obligations and deliver value to customers and shareholders. That's the way we're most looking at it. And then if there's other opportunities that present themselves that are better for shareholders, we'll certainly consider those.
Analyst Colin Canfield (CatTor): Got it. Got it. And then maybe turning over to defense bookings, as you think about the environment, appreciating the healthy performance on probably a US side. But as you think of like the continent in Europe, how are you kind of seeing the demand signals materialize? Because I think one of the kind of pieces that the market's kind of working through now is whether or not the IRS timetable matches up to national security risks. And you can argue that some of the awards we've seen today suggest is probably an accelerated interest for kind of new constellation build or new capabilities. So maybe, just maybe like parse out the incremental government demand that you're seeing beyond just the U.S. side and how you expect that to unfold over a multi-year period. Thank you.
Management: Okay, yeah, I think if I were to talk about sort of national security in general, I think that the things that we're really seeing, there's kind of two, and two of them, one of them by far Definitely, really, it's high priority, and you're seeing this in Iris Squared, is sovereignty, is that countries don't want to depend on individual or other foreign corporations or foreign countries for essential national security. So I think then what that's driving them to is, okay, I don't necessarily need to have my own Leo or whatever it is. What I need to do is get the effects of that those deliver in a way that I have sovereignty over it. And the effects that they generally need are things like I might need small terminals, I might need terminals that can be deployed rapidly, that don't become targets rapidly, that resist jamming or other countermeasures, that are cyber secure. I think there's this list of requirements that you're seeing that are playing out, let's say, with Ukraine being kind of the example of what people might expect from a countermeasures perspective and what they need in order to defend themselves in a modern tactical environment.
Then the question becomes, okay, how do I get those things and still have sovereignty? And some of that may come through infrastructure sharing in certain ways, and others that may come from you can certainly achieve pretty much any of the effects I described with the right geosystems as well. And you could achieve them to different extents, even with existing systems. So those are the conversations that we're having now. Really, how do I get the effects? And then how do I have control over those? Those are, I'd say, the two biggest issues.
Analyst Colin Canfield (CatTor): Okay, I appreciate the call. Thank you.
Management: And
your next question comes from the line of Edison Yu with Deutsche Bank. Edison, please go ahead.
Analyst Edison Yu (Deutsche Bank): Thank you, and happy Friday. I wanted to come back to the spectrum. I believe you have quite a bit of S-band in Europe, and I'm wondering if you can clarify the... the future intention with that. And if I'm not mistaken, some of it or all of it comes up for renewal in 2027. And so curious on what you plan to do about that. Do you think it will get all back and how you see that situation?
Management: Okay. So yeah, the S-band spectrum in Europe, the history is that it derived from a particular program. We are one of the holders of a spectrum grant through the Inmarsat acquisition. There is an ongoing process in the European Union to determine how to allocate that spectrum post-2027. We've submitted applications, an application to do that. They're going through a process. You know, we think that we, as an operator, have fulfilled the commitments that MRSAT made. We, through our acquisition of MRSAT, made when it was first allocated. And in our application, I think we're making a strong case for why we would still be a good steward of that spectrum, both in terms of what we would do with ground systems, what we do in space, and what we would do with user terminals. And I think that's where it currently stands. And the European Union will allocate not only our portion of the spectrum, but the additional portions of the spectrum sometime in the next year or two.
Analyst Edison Yu (Deutsche Bank): Understood. I appreciate that. Wanted to come back on F2 and F3. Is there any way to dimension, let's say you're fully up in service, how much of a growth bump or sales bump, whatever, that you will get once those two are fully operational?
Management: Boy, so one of the ways to think about it, just this is at a very top level, it roughly, those two satellites together would kind of triple the amount of bandwidth that we would have. And if, you know, now how we monetize that depends on what the mix of services are, where that, you know, where that service is, where those services are. And, you know, the other thing that we're really sensitive to, because we've been, you know, one of the leaders in providing service level agreements is, you know, where those services, where the demands are for those services. I think we've been doing a good job of fulfilling the service commitments that we make. And so we have to look at where the bottlenecks might be.